As we have previously noted in TaxVine, the 2% income tax ‘levy' is the wrong direction to be taking Australia's tax system and highlights the need for structural reform. It shows that the current tax system is not raising sufficient revenue to meet the spending decisions of Government.
On close inspection, the Bills introducing the ‘levy' also suffer from a range of technical deficiencies. The Bills, if passed by the Senate without amendment, will add complexity, inefficiency and inequity to the tax system. These deficiencies highlight the dangers of tinkering with the tax system without carefully considering the system as a whole.
The impact of the ‘levy' will be felt not just by taxpayers earning taxable income over $180,000 but by many below that threshold. This is due to the increases in rates of tax applicable to FBT and Superannuation which are based on the highest marginal tax rate but apply broadly. The changes to rates applicable to Superannuation funds in particular do not seem to have a basis in maintaining the integrity of the ‘levy'.
While we support the use of consistent rates throughout the Tax Act, a 2% increase impacting on taxpayers who are not on the highest marginal rate of tax is at odds with the rationale in the Explanatory Memorandum that the ‘levy' and associated changes “will ensure that those with a greater capacity to pay make a larger contribution to reducing the budget deficit.”
Our full submission to the Senate Economics Legislation Committee can be found on our website here.
Thilini Wickramasuriya ATI, Tax Counsel at The Tax Institute.
The Tax Institute is Australia's leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.